Parliament returns to a busy agenda on Monday. One priority will be discussion of the immigration proposals. It was revealed as a points-based system for both the EU and the rest of the world. Meanwhile, it has been confirmed that the UK budget will go ahead on 11th March. Trade negotiations between the UK and the EU will formally start early next month.
All of the data releases last week confirmed the initial indications of a post-election pickup. February PMIs and CBI industrial survey suggested that this pickup continues. The PMI data suggests first quarter GDP growth of 0.2%. Inflation also increased with headline inflation up to 1.8* with ‘core inflation at 1.6%. There is less data this week, with only CBI’s February retail survey giving an update on consumer spending. Friday’s GFK consumer confidence is expected to show a rise in the headline measure
There still seems to be little sign that the spread of the coronavirus has peaked and China has added to the confusion by again revising its daily tally of infections. The consensus expectation continues to be that the economic impact will be similar to the 2003 SARS outbreak with potentially a large near-term hit to economic growth followed by a relatively rapid rebound. However, it will remain difficult to quantify this until the extent of the outbreak becomes clearer.
GBPEUR – 1.1971
GBPUSD – 1.2951
The February Eurozone PMI data was stronger than expected, with the composite index at its highest since August. The PMIs suggest a modest pickup in first-quarter GDP growth after near stagnation. In contrast, the German ZEW survey showed a slowdown in both the current situation and expectations. Nevertheless, concerns persist about the growth outlook, not least because of international uncertainties. Today’s February IFO survey will provide a further update on conditions. Markets expect modest declines in both current conditions and expectations for February.
The preliminary February PMI readings gave some hints of an initial impact from the coronavirus. This shows on both manufacturing and some other sectors including tourism. Companies noted concerns of weakening demand from Asia and potential supply chain disruptions. Overall, however, it is probably still too early to expect to see a significant effect in the economic data. In the meantime, G20 finance ministers and central bank heads will discuss the potential economic impact in meetings in Riyadh starting today.
EURUSD – 1.0815
EURGBP – 0.8352
Last week’s US data calendar was very light. Housing and industrial activity suggest that the economy continues to grow at a more rapid pace than other developed economies. This week, we have a second reading for fourth-quarter GDP which may see a very modest upward revision to growth. Friday’s report on consumer spending will be more interesting. That is forecast to show spending continuing to grow at a solid pace. Meanwhile, the Fed’s preferred inflation measure, the PCE deflator, is forecast to record an annual rise of 1.8%, still below the 2.0% target. Overall the economic outlook is consistent unchanged interest rates. However, markets continue to look for a cut in interest rates later this year.
Coronavirus jitters returned to markets last week. Equities have been volatile but generally seem to be ending the week down. As a result, government bond markets have rallied led by US Treasuries. Currency markets have been less volatile but a key theme is the strength of the US dollar. The USD Index is close to recent highs as the dollar reached its highest level against the euro since 2017.
GBPUSD – 1.2951
EURUSD – 1.0815
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*Interbank rates correct as at 7 am on the date of publishing.
